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Alibaba Principals May Start Cashing Out

The shares of Alibaba Group Holding Ltd. (NASDAQ:BABA) fell slightly in pre-market trading September 14, after it was learned that founder Jack Ma was cashing out of some of his stock.

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Ma and executive vice chairman Jack Tsai are selling up to 22.5 million shares, less than 10% of their holdings, for up to $4 billion, planning to give some cash away and help with estate planning.

The stock fell about 1%, giving back half the gain from September 13 trading, but the complete trade is less than 1% of the company’s market cap and the stock is expected to recover.

But what about other big holders who might have itchy trading fingers? Vast fortunes were put in a few hands as Alibaba developed from a small business to business trading firm to a giant often compared with Amazon.Com Inc. (NASDAQ:AMZN).

Will Son-San Sell Alibaba?

Consider Masayoshi Son. He turned $20 million of Softbank Group Corp. (OTCMKTS:SFTBF) cash into 30% of Alibaba when Ma and Tsai pitched it to him in 1999. Now 95% of Softbank’s market value is based on its 28% share of Alibaba. 

Meanwhile Son has gone on to other things, buying a controlling interest in Sprint Corp. (NYSE:S) and, now, putting together what he calls a $100 billion fund aimed at controlling the next big trends in technology. He has cash flow problems and he now only owns 19% of his own firm. He could try to put Sprint together with T-Mobile US Inc. (NASDAQ:TMUS) and get cash that way, but otherwise Alibaba is his one big win.

Son-san likes to see himself as a big, Earth-changing man. But the original Softbank crashed-and-burned, buying such things as the Comdex trade show, during the dot-com bust, 20 years ago. His are not strong hands, and dumping 28% of Alibaba on the market is going to be a blow to its stock price.

Will The Company Formerly Known as Yahoo Sell?

Then there’s Altaba Inc. (NASDAQ:AABA), the holding company formerly known as Yahoo. The operating company was sold to Verizon Communications Inc. (NASDAQ:VZ) early this year, where it now is known as Oath (some would call it Ooof). But the remaining 15% stake in Alibaba, along with about one-third of Yahoo Japan, began trade June 19.

Since then Altaba is up 22%. Not bad for three months of sitting on your assets.

But here’s the problem. A public company doesn’t just sit on assets. Its shareholders can change, and those shareholders can demand change. Recently, both David Einhorn and George Soros have been buying Altaba shares. Maybe they would prefer cash.

Then there’s Yahoo Japan. Its other big owner is Softbank. You know, Masayoshi Son’s company. I have already described him as having other interests, cash flow problems, and an interest in raising cash.

What if Altaba suddenly decided, through its biggest shareholders, to quietly go liquid? What would that do to the value of Alibaba shares?

The Company’s All Right

In recent months, I have called Alibaba a bubble stock, which is not the same as calling it a bad operator. Amazon is also a bubble stock. 

My point is that even good things can become overvalued. They can top out. Investors are now paying 60 times earnings for Alibaba, whose revenue grew 36% year-over-year in its most recent report. That’s almost twice the Price to Earnings ratio of Alphabet Inc. (NASDAQ:GOOGL), three times that of Apple Inc. (NASDAQ:AAPL).

The company itself is doing great. It brings one-quarter of its revenue to the net income line, or more, every quarter, its debt levels are going down steadily despite its increasing investment in cloud data centers, entertainment, and foreign expansion. Its management team is excellent.

But its ownership is not fragmented, in the way many tech leaders’ stocks are. It’s concentrated in its founding generation. Those folks are, at some point, going to want money while investors are left holding stock.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time,  available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA and AMZN.


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/alibaba-principals-cashing-out/.

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